Commentary: What really happened with the Texas Miracle may surprise you

By Chris Tomlinson, Houston Chronicle

April 22, 2016

Photo: Express-News File Photo

The oil and gas industry is part of the Texas Miracle, as are conservative policies. But they don’t account for all of the state’s growth.

The oil and gas industry is part of the Texas Miracle, as are...

The experiment is complete, and the results are clear: The Texas Miracle had more to do with high oil prices and geography than its blustery politics.

An economic slowdown is a high price to pay for settling this argument. But at least now we know that politicians are not nearly as important to the economy as they claim — and for that, we should all be relieved.

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The idea of the Texas Miracle was born during the Great Recession, when Texas’ economy grew while the rest of the nation foundered. During his presidential campaign, former Gov. Rick Perry accurately bragged that more jobs were created in Texas from 2008 to 2012 than in the rest of the country combined.

Conservative commentators touted Perry for his policies of no income taxes, few regulations and high hurdles for personal injury lawyers. Jealous liberals claimed that Houston oilman George Mitchell was the one really responsible for those jobs because he pioneered hydraulic fracturing to break oil and natural gas out of shale rock.

Since 2014, though, the prices for oil and natural gas have collapsed, 250,000 people have lost their jobs, and all that’s left are Perry’s policies. So what did we learn?

First, the Texas economy is not as diversified as you may think.

A common refrain among boosters is that oil and gas are no longer as important to Texas as they were in 1986, when the last big bust devastated the state. But that’s only true because the federal government rewrote the classification rules for calculating gross domestic product, or GDP, in 1992.

Oil and gas made up about 16 percent of the economy in 1986. When the old classification system is applied to Texas in 2014, the industry accounted for 14 percent of economic activity, according to Dale Craymer, president of the Texas Taxpayers and Research Association, a pro-business lobby group. He’s a former chief revenue estimator in the Texas Comptroller’s Office and has been analyzing the economy for 30 years.

Officially, Texas may have lost about 65,000 jobs in the oil and gas sector, but when you include the indirect layoffs, the total rises to 250,000, Craymer added.

“In the oil and gas communities, two years ago it was impossible to find an empty hotel room or a table at a restaurant, but there are not so many hospitality jobs anymore,” Craymer said.

Texas no longer outpaces the rest of the country in job creation, with the state unemployment rate ticking up as the rest of the country’s goes down. Texas is still adding jobs at a rate of 1 percent, but the rest of the country is growing at 2 percent.

“Oil and gas is clearly part of the Texas Miracle, maybe a third,” Craymer explained. “But it’s certainly not all of the Texas Miracle.”

So does that mean conservative politics are responsible for the other two-thirds? Some of it, but not all.

Strict limits on lawsuits are a big draw for industries that tend to get into legal trouble. Limits on unions mean companies relocating here don’t have to worry about labor disputes. And a permitting process that can take a year in other states may take only six months here, Craymer said.

Taxes, though, are mixed a mixed bag. Employees enjoy the absence of a personal income tax, but the effective tax rate on businesses is above the national average at 5.3 percent. Complying with the franchise tax is expensive, even if a company doesn’t have to pay it, and property taxes are punishing.

“We have very high property taxes, and we also are one of only seven states that include business inventories as part of the property tax,” Craymer said.

To make up for that, Texas must offer property and sales tax abatements, he added.

“The simple truth is we’re not going to be able to compete for those major investment projects if we don’t offer some kind of temporary safe harbor from our incredibly high property taxes,” Craymer said.

If the oil business and the state’s conservatism don’t wholly explain why people and businesses move here, then what’s the secret ingredient? Well, to steal from the title of my friend Erica Grieder’s book, Texas is big, hot and cheap.

“The truth be told, Texas has been outperforming the U.S. consistently back to World War II,” Craymer said. In 78 percent of the monthly jobs reports since 1939, Texas has beat the national average in job growth.

Texas has a major port, borders one of the country’s largest trading partners, and has almost no winter. Population density is low and land is relatively cheap, which makes it easy for people and companies to buy property. Texas also has other natural resources, including agriculture, timber and access to the sea.

Texans also beat the national average in making babies, which stimulates the economy and boosts the number of available workers, while Rust Belt states suffer from shrinking workforces. Texas doesn’t spend much on education, though, and has more minimum-wage workers who don’t have health insurance than any other state. While that keeps overhead low for some businesses, it keeps the economy from generating more high-paying jobs.

Texans can take pride in a lot of these facts but should be ashamed of others. Texas’ economic growth, though, is due to more than public policy and oil, which means we have room to fix some of our problems.